How to Calculate Your Freelance Hourly Rate (Step-by-Step)

Why Your Hourly Rate Matters More Than You Think

Setting the right hourly rate is one of the most important decisions you will make as a freelancer. Charge too little, and you will burn out working long hours for unsustainable pay. Charge too much without the experience to back it up, and you will struggle to land clients.

The truth is, most freelancers undercharge -- especially when starting out. They pick a number that "feels right" or match what they earned as an employee, forgetting that freelancing comes with extra costs and responsibilities.

Let's fix that with a clear, step-by-step formula.

The Freelance Hourly Rate Formula

Here is the formula broken down into simple steps:

Hourly Rate = (Target Annual Income + Business Expenses + Taxes) / Annual Billable Hours

Step 1: Define Your Target Annual Income

Start with how much you want to take home after everything is paid. This is your net income -- the money that actually lands in your bank account.

What salary would you need to live comfortably?
Do you have savings goals, retirement contributions, or debt payments?
What were you earning in a similar full-time role?

For example, let's say your target take-home income is $60,000 per year.

Step 2: Add Your Business Expenses

As a freelancer, you cover costs that an employer used to handle. Common expenses include:

Software and tools (project management, design tools, accounting)
Hardware (computer, monitor, peripherals)
Internet and phone bills
Coworking space or home office costs
Professional development and courses
Health insurance and retirement contributions
Marketing and website hosting

Let's estimate $10,000 per year in business expenses.

Step 3: Account for Taxes

Freelancers pay self-employment taxes on top of income tax. Depending on your country and region, this can range from 20% to 40% of your income.

A safe estimate for many freelancers is 30%. If your target income plus expenses is $70,000, you need to earn about $100,000 gross to keep $70,000 after taxes.

Step 4: Calculate Your Billable Hours

This is where most freelancers get it wrong. You will not bill 40 hours a week, 52 weeks a year. You need to subtract:

Vacation and sick days: 3-4 weeks off per year
Non-billable work: Admin, invoicing, marketing, emails, proposals
Slow periods: Gaps between projects

A realistic estimate for most freelancers is 1,000 to 1,200 billable hours per year -- that is roughly 20-25 hours of billable work per week.

Step 5: Do the Math

Using our example:

Target income: $60,000
Expenses: $10,000
Subtotal: $70,000
With 30% taxes: ~$100,000 needed
Billable hours: 1,100

$100,000 / 1,100 = ~$91 per hour

That number might surprise you. Many freelancers who "feel" like $40/hour is reasonable are actually losing money once all costs are factored in.

Common Mistakes When Setting Your Rate

1. Copying Your Employee Salary

A $30/hour employee costs the company much more than $30/hour when you add benefits, office space, and equipment. Your freelance rate needs to cover all of that.

2. Ignoring Non-Billable Time

If you assume you can bill 8 hours every day, your effective rate will be much lower than you planned. Track your time for a month -- you might be surprised how much goes to unpaid work.

3. Racing to the Bottom

Competing on price alone is a losing strategy. Clients who choose the cheapest option are rarely the best clients. Focus on the value you provide instead.

4. Never Raising Your Rates

Your skills improve over time. Your rates should too. Review your pricing at least once a year and adjust for inflation, experience, and market demand.

Tips by Experience Level

Beginners (0-2 years):

Research market rates for your field and location
Start slightly below market rate to build your portfolio
Raise your rates with each new client as you gain confidence

Mid-level (2-5 years):

You should be at or above market rate
Start offering project-based pricing for more predictable income
Specialize in a niche to justify higher rates

Senior (5+ years):

Charge a premium based on your track record
Consider value-based pricing tied to client outcomes
Your rate should reflect the business results you deliver, not just hours worked

Take Action Today

Do not guess your rate. Run the numbers using the formula above, or try our hourly rate calculator to get a personalized recommendation in minutes.

Your time is your most valuable asset. Price it accordingly.